27566036-chap-002

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Bateman Snell

Management

5thEdition

Competingin theNew Era


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Part OneChapter 2 - The External Environment

Chapter OutlineThe MacroenvironmentThe Competitive EnvironmentEnvironmental AnalysisResponding to the EnvironmentChoosing a Response Approach


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Learning ObjectivesLearning Objectives

After studying Chapter 2, you will know: how environmental forces influence organizations, as well as

how organizations can influence their environments how to make a distinction between the macroenvironment

and the competitive environment why organizations should attend to economic and social

developments in the environments how to analyze the competitive environment how organizations respond to environmental uncertainty


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The External EnvironmentThe External Environment

Organizations are open systems affected by, and in turn affect, their external environments

External environment all relevant forces outside a firm’s boundaries

relevant - factors to which managers must pay attention two elements comprise the external environment

competitive environment - immediate environment surrounding a firm

macroenvironment - fundamental factors that generally affect all organizations


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Laws andpolitics

Economy

Technology

DemographicsSocialvalues

MacroenvironmentCompetitiveEnvironment

OrganizationSuppliers

NewEntrants

SubstitutesRivals

Buyers

The External EnvironmentThe External Environment


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The MacroenvironmentThe Macroenvironment

The macroenvironment most general elements in the external environment that can

potentially influence strategic decisions all organizations are affected by the general components of

the macroenvironmentLaws and regulations

impose strategic constraints and provide opportunities regulators - specific government organizations in a firm’s

more immediate task environmenthave the power to investigate company practices and take legal action to ensure compliance with the laws


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The Macroenvironment (cont.)The Macroenvironment (cont.)The economy

created by complex interconnections among economies of different countries

important elements include interest rates, inflation rates, unemployment rates, and the stock market

economic conditions change and are difficult to predictTechnology

technological advances create innovations in businessnew products, advanced production techniques, and improved methods of managing and communicating

strategies that ignore or lag behind competitors in considering technology lead to obsolescence and extinction


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Twelve Month Comparison Of Stock Markets

Twelve Month Comparison Of Stock Markets

Nasdaq

DJIA

S&P 500


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The Macroenvironment (cont.)The Macroenvironment (cont.)

Demographics measures of various characteristics of the people comprising

groups or other social units workforce demographics must be considered in formulating

human resources strategiespopulation growth influences the size and composition of the labor force

immigration also is a significant factorincreasing diversity of the labor force has both advantages and disadvantages

must assure equal employment opportunity


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The Macroenvironment (cont.)The Macroenvironment (cont.)

Social issues and the natural environment management must be aware of how people think and behave

the role of women in the workplacesocial costs of smokingprotection of the natural environment


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Competitive EnvironmentCompetitive Environment

Competitive environment comprises the specific organizations with which the

organization interactsMichael Porter - defined the competitive environment

successful managers:react to the competitive environmentact in ways that actually shape or change the competitive environment


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Newentrants

Newentrants

Newentrants

Newentrants

Rival firms

Competitive EnvironmentCompetitive Environment


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Competitive Environment (cont.)Competitive Environment (cont.)

Competitors competitors within an industry must deal with one another organizations must:

identify their competitorsanalyze how competitors competereact to and anticipate competitors’ actions

competition is most intense: where there are many competitorswhen industry growth is slowwhen the product or service cannot be differentiated

intense competition causes an industry shakeout


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Threat of new entrants barriers to entry - influence the degree of threat

include government policy, capital requirements, and brand identification

Threat of substitutes technological advances and economic efficiencies may result

in substitutes for existing products substitutes can limit another industry’s revenue potential companies need to think about potentially viable substitutes


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Suppliers provide the resources needed for production powerful suppliers can reduce an organization’s profits

international labor unions are noteworthy suppliers dependence on powerful suppliers is a competitive

disadvantagepower of supplier determined by:

availability of other suppliers from whom to buy the number of customers for the supplier’s products

switching costs - fixed costs buyers face if they change suppliers


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Customers purchase the products or services the organization offers

final consumers - purchase end productintermediate consumers - buy raw materials or wholesale products

sell them to final consumers make more purchases than individual final consumers do

customer service - giving customers what they want, the way they want it, the first time

disadvantageous to depend too heavily on powerful customerspowerful customers make large purchases and have other suppliers


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EnvironmentalScanning

BenchmarkingScenario

Development

Forecasting

Environmental AnalysisEnvironmental Analysis


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Environmental AnalysisEnvironmental Analysis

Environmental uncertainty lack of information needed to understand or predict the

future uncertainty arises from two related factors

complexity - the number of issues to which a manager must attend as well as their interconnectedness

dynamism - the degree of discontinuous change that occurs within the industry

as uncertainty increases, techniques must be developed to collect, sort, and interpret information about the environment


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Environmental Analysis (cont.)Environmental Analysis (cont.)

Environmental scanning searching for and sorting through information about the

environment competitive intelligence - information that helps managers

determine how to compete better competitive potential of environments differs

attractive environments - give firm a competitive advantageunattractive environments - put firm at a competitive disadvantage


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Attractive

Attractive and Unattractive Environments

Attractive and Unattractive Environments

Few; high industry growth;unequal size; differentiated

Low threat; many barriers

Few

Many; low bargainingpower

Many; low bargainingpower

AttractiveEnvironmental

FactorCompetitors

Threat of entry

Substitutes

Suppliers

Customers

UnattractiveMany; low industry growth;equal size; commodity

High threat; few entry barriers

Many

Few; high bargaining power

Few; high bargaining power


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Scenario development scenarios - a narrative that describes a particular set of future

conditionsbest-case scenario - events occur that are favorable to the firmworst-case scenario - events occur that are unfavorable

help managers develop contingency plansForecasting

method for predicting how variables will change in the future accuracy varies from application to application forecasts are most useful when they accurately predict a

changed future environment


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Benchmarking process of comparing the organization’s practices and

technologies with those of other companiesdetermine the best-in-class performance by a company in a given area

benchmarking team collects information on its own company’s operations and those of benchmark companies to identify gaps

gaps investigated to learn the underlying causes of performance differences


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Responding To The EnvironmentResponding To The Environment

Adapting to the environment company adjusts its structures and work processes in uncertain environment caused by complexity, companies

tend to decentralize decision makingempowerment - process of sharing power with employees

enhances their confidence in their ability to perform their jobs engenders beliefs that they are influential contributors to the firm

in uncertain environments caused by dynamism, companies tend to establish more flexible structures

bureaucracy - suited for stable environments (low dynamism)organic - provides flexibility required for changing environments (high dynamism)


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Complex

Simple

Stable Dynamic

DecentralizedBureaucratic(Standardized skills)

CentralizedBureaucratic(Standardized work processes)

DecentralizedOrganic(Mutual adjustment)

CentralizedOrganic(Direct supervision)


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Responding To The Environment (cont.)


Adapting to the environment (cont.) Adapting at the boundaries

buffering - creating supplies of excess resources in case of unpredictable needs

buffers created on both the input and output side of the businesssmoothing - leveling normal fluctuations at the boundaries of the organization

Adapting at the coreflexible processes - permit adaptation of the technical core

mass customization -use of a network of independent operating units that each performs a specific process

different modules join forces to deliver the product or service as specified by the customer


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Influencing your environment proactive responses aimed at changing the environment

Independent action - strategies that an organization acting on its own uses to change some aspect of its current environment

Cooperative action - strategies used by two or more organizations working together to mange the external environment

at an organizational level, establish strategic alliances, partnerships, joint ventures, and mergers with competitors


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Changing the environment you are in strategic maneuvering - conscious effort to change the

boundaries of the competitive environmentprospectors - companies that continuously change the boundaries of their task environments by:

seeking new products and markets diversifying and merging acquiring new enterprises

defenders - companies that stay within a stable, more- limited product domain as a strategic maneuver




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Change appropriate elements of the environment focus on elements that:

cause the company problemsprovide the company with opportunitiesallow the company to change successfully

Choose responses that focus on pertinent elements of the environment

focus on competitive aggression and pacification Choose responses that offer the most benefit at the

lowest cost focus on both short- and long-term financial considerations

Choosing A Response ApproachChoosing A Response Approach

27566036-chap-002

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